TMI Blog1997 (1) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal") and question No. 2 was answered against the assessee and in favour of the Revenue. The said question was in these terms : "Whether the Tribunal was right in holding that on the facts and in the circumstances of the case, the exchange of one security for another could be described as realisation of the security resulting in profit ?" The matter relates to the assessment year 1963-64 for which the relevant previous year ended on July 31, 1962. The assessee is a company dealing in shares. It was holding 14,500 shares in Asiatic Oxygen and Acetylene Company Limited (hereinafter referred to as "the first company"), of the face value of Rs. 10 each as its stock-in-trade. The said shares were valued by the assessee at Rs. 1,45,000 (the cost price) at the end of the assessment year 1962-63 and were included in the closing stock. In the assessment year under reference a new company, Asiatic Oxygen Ltd. (hereinafter referred to as "the second company"), had made an offer to obtain the shares of the first company in exchange for the allotment of its own shares at the rate of 38 equity shares in the second company for 10 equity shares in the first company. The assessee accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the shares of the second company in exchange for the shares of the first company does not constitute a sale and has placed reliance on the decision of this court in CIT v. Motors and General Stores (P.) Ltd. [1967] 66 ITR 692. Shri Puri has also placed reliance on the decision of the House of Lords in British South Africa Co. v. Varty (Inspector of Taxes) [1966] AC 381 and has submitted that the decision of the House of Lords in Westminster Bank Ltd. v. Osler (Inspector of Taxes) [1933] 1 ITR 65, referred to in the impugned judgment of the High Court, has been distinguished by the House of Lords in the subsequent decision in the case of British South Africa Co. v. Varty (Inspector of Taxes) [1966] AC 381. The question that arises for consideration is whether the surrendering of its shares in the first company in exchange for the shares of the second company by the assessee can be regarded as realisation of the security on the date of such surrender and exchange. If it can be so regarded then the sum of Rs. 4,06,000, the difference between the book value of 14,500 shares of the first company and the market value of the 55,100 shares of the second company as on the date of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this principle of waiting for a realisation, I think there is this idea : while an investment is going up or down for income-tax purposes the company cannot take any notice of fluctuations, but it has to take notice of them when all that state of affairs comes to an end, when that investment is wound up--I will say 'wound up' is an unfortunate expression perhaps and I will say when an investment ceases to figure in the company's affairs, when it is known exactly what the holding of that investment has meant, plus or minus to the company, and then the company starts so far as that portion of its resources is concerned with a new investment. Then one knows where one is and it is no longer a question of paper, it is a question of fact and that is a realisation. I think that is the point of view from which it ought to be looked at, and looking at it from that point of view the company is right. It has done with the investments in the companies. They have disappeared. It is known exactly in money. It is known now exactly what their holding of them has meant to the company. They will never more go up or down. What will go up or down now are the different shares in the new companies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s urged that upon the exercise of the option there was a realisation because the option which was a "trading asset" or an item of "stock-in-trade" was exchanged for or was replaced by a different item of stock-in-trade which had a value in money's worth. The said contention was rejected by the House of Lords (Lord Guest dissenting). It was held that the appellant-company never, in fact, realised their option in the sense of passing it on for a consideration to someone else and that there was neither a sale of the option nor its exchange for something else and that when the company exercised their option or used or availed themselves of their rights they did not make the end of the trading transaction and that there was merely the end of the beginning of a trading transaction. It was emphasised that there was no element of exchange as there was in Royal Insurance Co. Ltd. v. Stephen [1928] 14 TC 22 (KB) and in Westminster Bank Ltd. v. Osler (Inspector of Taxes) [1933] 1 ITR 65 (HL). (see Lord Morris of Borth-y-Gest-at pages 394 and 395). Lord Guest, in his dissenting judgment, however, felt that the option was a trading asset of the appellant-company and, applying the principles lai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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